2016 Central and Eastern Europe Prosperity Report

This inaugural 2016 Central and Eastern European Prosperity Report underscores the importance of looking beyond wealth. It shows that while Central and Eastern Europe’s (CEE) average income remains far behind that of Western Europe, its prosperity has converged at a much faster rate

The Legatum Prosperity Index™ is a framework that assesses countries on the promotion of their citizens’ flourishing, reflecting both economic and social progress across nine pillars of prosperity, ranging from Governance and Business Environment to Social Capital, and 104 variables. This makes the Index an authoritative measure of human progress, offering a unique insight into how prosperity is forming and changing across the world.

The Prosperity Index captures the richness of a truly prosperous life and with it seeks to re-define the way we measure national success. It shows how quality education and healthcare, effective governance, as well as strong social bonds, are crucial to a thriving society and flourishing nation.

A nation’s prosperity has traditionally been measured by macroeconomic indicators of wealth such as average income per person, GDP per capita. In moving to “GDP and beyond” to cover both wealth and wellbeing, and not just one or the other, the Prosperity Index is not discarding the importance of wealth creation.

Indeed, it is no surprise to find that countries with low prosperity scores tend to have low average incomes and vice-versa. However, prosperity is as much about wellbeing as it is about wealth. There are numerous factors that together determine the life chances and opportunities made available to a nation’s citizens.

That is why we go beyond prosperity rankings and look at how well countries deliver prosperity in relation to their wealth levels. Using GDP per capita, the level of prosperity delivered by a country can be compared with the level of prosperity expected given that country’s wealth. By doing this, we can identify the countries who are doing the most with what resources they have. We can describe countries that are delivering more prosperity than would be expected given their wealth as having a ‘prosperity surplus’ and those delivering less, a ‘prosperity deficit’.

This inaugural 2016 Central and Eastern European Prosperity Report underscores the importance of looking beyond wealth. It shows that while Central and Eastern Europe’s (CEE) average income remains far behind that of Western Europe, its prosperity has converged at a much faster rate.

Through improvements across the nine sub-indices of prosperity, the region’s prosperity is now at 87 percent of the Western European average compared to 47 percent for income.

Central and Eastern Europe achieved much of its prosperity convergence in a buoyant global economic environment. Reintegrating into the global economy, the region realised large gains from trade. Those countries that joined the European Union acquired institutional credibility, and received large net capital inflows. Their citizens moved west across the European Union in search of work, reducing the wage gap between Western and Central and Eastern Europe.

Now, in a global environment that is less favourable to economic growth, and a European environment increasingly hostile to integration, the region’s prosperity depends increasingly on its own ability to deliver more prosperity relative to its income – to generate a prosperity surplus for its citizens.

One of this study’s central findings is that the ability of Central and Eastern European countries to deliver a prosperity surplus is limited by the region’s defining and damaging characteristic: one of the world’s largest social capital deficits. This deficit, a legacy of communism, means that the bonds and trust between citizens and citizens and institutions are substantially weaker than those elsewhere in the world. These weaknesses have serious implications for the region’s performance across its components of prosperity.

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